Yowell Company began operations on January 1, Year 1. During Year 1, the company engaged in the following cash transactions:
1) issued stock for $76,0002) borrowed $43,000 from its bank3) provided consulting services for $75,000 cash4) paid back $33,000 of the bank loan5) paid rent expense for $18,0006) purchased equipment for $30,000 cash7) paid $4,800 dividends to stockholders8) paid employees' salaries of $39,000
What is Yowell's net income for Year 1?
A) $57,000
B) $18,000
C) $13,200
D) $34,200

Question

Yowell Company began operations on January 1, Year 1. During Year 1, the company engaged in the following cash transactions: 
1) issued stock for $76,0002) borrowed $43,000 from its bank3) provided consulting services for $75,000 cash4) paid back $33,000 of the bank loan5) paid rent expense for $18,0006) purchased equipment for $30,000 cash7) paid $4,800 dividends to stockholders8) paid employees' salaries of $39,000
What is Yowell's net income for Year 1?
A) $57,000
B) $18,000
C) $13,200
D) $34,200

Quizplus · Accepted Answer

To calculate net income, we need to subtract all expenses from revenue. The revenue for Yowell is $75,000 from providing consulting services. 
Expenses are: 
- Rent expense of $18,000 
- Salaries of $39,000 
- Dividends paid of $4,800 
- Cost of equipment of $30,000 (this is not an expense as it is a purchase of an asset) 
So the total expenses are $91,800. 
To calculate net income, we subtract expenses from revenue: 
$75,000 - $91,800 = -$16,800 
This means that Yowell had a loss, not a net income for Year 1. The correct answer is B, $18,000.

Yowell Company Began Operations on January 1, Year 1